Protect your Retirement

More people are contributing to 401(k) and other retirement plans than ever before, yet few are financially “ready” when they retire. The typical worker nearing retirement has only two years worth of income saved. That’s 15 years short of what they might need, based on the median lifespan of retirees. On top of the lack of retirement savings another problem that most savers aren’t giving much thought to is the U.S. national debt and how that will impact their retirement income.

The national debt has surpassed $18 trillion. That’s $124,000 for each American household or $56,378 per individual. It took the country 205 years to accumulate its first trillion dollars of debt in 1981, but has only taken us 403 days to accumulate our most recent trillion. It’s hard to even think about numbers that big; if you were to wait one million seconds it would take 12 days; if you wanted to count to a trillion one number per second it would take over 31 thousand years.

Like with our personal debt, there may actually be some advantages to taking on debt. The flat screen TV and Christmas presents we purchase with debt likely increase our standard of living and wellbeing. But this short term gain is often paid for with long term pain. And the currency of this pain is interest.

Interest is the price of debt. So, when we buy a TV on a credit card, we are actually buying two things: the TV and the debt that goes with it. While a few extra dollars spent on interest each month may be worth it to see our favorite football players in HD, too much of our income spent interest can seriously reduce our quality of life because we must forgo other purchases to pay for it.

This is the point that the country has reached with its interest on the national debt.

Last year, the U.S. spent $430 billion on interest payments alone. This means that every year, tax payers are spending $3,500 just on interest payments. This is money that isn’t going to pay for roads, bridges, education, medical research or defense.

It gets scarier. National debt interest rates are historically low at the moment — around 2.5 percent. When they rise, interest payments will rise exponentially thanks to the wonders of compounding rates. Say interest rates rise to 5 percent — still low by historical standards. That means we will owe nearly $1 trillion each year in interest alone. That’s about two-thirds of what the federal government brings in each year in total income tax revenue!

SO, if you have a large IRA, 401k or similar retirement plan, you may have a tax problem. If you don’t use it or leverage it, you will likely lose a significant portion to future taxes. A properly designed, Indexed Universal Life Insurance (IUL) policy offers tax advantages no other single product can provide. It would take a combination of investments to equal all the advantages of an IUL.

IRS-approved tax advantages

With an IUL, there are no taxes due during the accumulation phase when the policy’s cash value builds up. When you retire, you may take tax-free distributions of the cash value. IULs also allow the tax-free exchange of one policy for another without triggering income taxes. And when you pass on, the tax-free death benefit may protect your loved ones against financial uncertainty.

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